Buyers Meeting Point procurement by Kelly Barner

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Achieving World-Class Procurement: The Steps Leading Companies are Taking to Optimize their Procurement Teams

Achieving World-Class Procurement: The Steps Leading Companies are Taking to Optimize their Procurement Teams

In today’s competitive market landscape, simply having a centralized procurement organization is only the first step to better managed supplier relationships and spend. Leading organizations are quickly realizing that procurement and sourcing groups can offer far more value than tactical support. World-class procurement groups aren’t focused on processing POs and fulfilling orders. Rather, they’re focused on supporting each business unit at a strategic level.

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The Importance of Vision, Messaging, and Alignment

The Importance of Vision, Messaging, and Alignment

Editor’s note: Scott Jancy is a multi-faceted professional, with experience as a historian, an architect, a Naval Officer, a planner, and a consultant. He blogs often on innovation, leadership, and design thinking. In his first guest post for Buyers Meeting Point, Scott takes on the topic of leadership through times of change. For procurement teams this might mean greater contact with procurement, a new organizational mandate, or the role out of different technology. Regardless of the source of the change, procurement must have a vision for the desired outcome and the messaging to build support and spread understanding.

Change of state is the physical process where matter moves from one state to another. Examples of such changes are melting, freezing, evaporation/boiling, condensation, sublimation, and deposition. Shifting temperatures and increased pressure are the usual causes of this kind of phase change in matter.

People and organizations can also change their state when subjected to stress. Typical causes include, but are not limited to, poor leadership, low employee morale, an ineffective or excessive office management, and possible job uncertainty. A team of people can either break apart or fuse together depending on how they react to the stress.

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Making an Informed Decision about Contingent Workforce Management Advice

Making an Informed Decision about Contingent Workforce Management Advice

Non-employee talent is getting more and more attention in the executive suite, as contractors, freelancers, and other knowledge-based contingent workers become increasingly important in achieving company goals. However, when management attempts to align its current contingent labor management program with corporate objectives, many companies find they are unable to answer the most basic questions about the effectiveness of their current practices.

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Tips for Effective Light Fleet Sourcing

Tips for Effective Light Fleet Sourcing

Fleet operations can absolutely be an overwhelming category to manage. Between deciding on the right vehicle manufacturer, understanding the ever-changing vehicle features, selecting the appropriate maintenance plans, managing fluctuating fuel costs, and more – the active time required is substantial. However, rather than looking at this category as a mountainous challenge, Fleet should be seen as a major cost saving opportunity.

There are multiple triggers for evaluating the fleet category from the top down beyond just due diligence:

  • Evaluating internal versus external management of the fleet.
  • Mergers and acquisitions will prompt the evaluation and consolidation of fleet operations.
  • A new company strategy may mandate the need for a new fleet policy.
  • Maybe the organization lacks a concrete fleet policy or management structure and has outgrown a passive management phase.

In all of these hypothetical situations, a few best practices can be used for an effective category evaluation that enables both cost savings and process optimization.

For any of the reasons listed above, the fleet evaluation/optimization process benefits from taking a two-pronged approach that includes both a comprehensive OEM evaluation and a Fleet Management Services (FMS) provider evaluation. If the fleet administration and management function is housed internally, this two-pronged approach still applies in terms of analyzing the internally managed program (reactive and preventative maintenance programs, acquisition and resale processes, etc.).

 

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Making the Case for Self-Sourced Talent Pools

Making the Case for Self-Sourced Talent Pools

As organizations continue to expand the use of contingent talent to supplement their full-time workforce, they are also seeking ways to optimize their contingent workforce programs to generate additional cost-savings. Historically, this was done through supplier rate rationalization, improvements in workflow and cycle time, and engaging a Managed Service Provider (MSP) and Vendor Management System (VMS) to drive efficiencies. While all of these measures generate cost-savings (particularly in first generation and early stage programs), more mature programs require the identification of other strategies like self-sourcing.

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Risk Management in Supply Chain and Procurement: Preparing for the Storm

Risk Management in Supply Chain and Procurement: Preparing for the Storm

Although we’re a few weeks past the Hanjin Shipping bankruptcy now, the shake up left experts, businessmen, companies, and customers alike wondering what other events could potentially jeopardize their operation or interfere with getting the product they ordered on time. There are countless risks in a globalized economy, making it a subject of relentless discussion among academics. That being said, some of the biggest companies in the world still do not have a team dedicated to risk management for their supply chain and procurement operations. A recent report by ATKearney and RapidRatings on managing supply risk in uncertain times found that “leaders have struggled to manage the latent risk in their extended supply chains. Most cite lack of bandwidth and budget as the biggest roadblocks. Dedicating scarce resources to prevent or minimize the impact of an issue that might never occur is often not a priority.”

With globalized supply chain operations, risk is growing and managing it is more critical than ever. Some risk factors have been greatly discussed in the industry, and others not so much. Below are a few of the risks threatening global supply chains as well as solutions and action items.

 

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Optimizing the Value of Trilateral Manufacturer Distributor Purchasing Relationships

Optimizing the Value of Trilateral Manufacturer Distributor Purchasing Relationships

When you just look at a purchase from a pricing perspective, it would be reasonable to think that purchasing products directly from the manufacturer be an effective way to reduce unnecessary overhead and markup costs.  While I generally find this to be true in practice, if it were that black and white the large number of distributors thriving in today’s markets would cease to exist.  Manufacturers and distributors each have strengths and weaknesses, but in a strategic purchasing landscape you do not always need to choose between the two. In fact, developing a balanced relationship with manufacturers AND distributors often proves to yield the most value, particularly with high volume purchases.

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Displacing Incumbent Suppliers

Displacing Incumbent Suppliers

You’ve invested a lot of time and money. You may even have staked your reputation on backing a supplier. So when is it time to replace them?

At a recent executive meeting, the subject of incumbent suppliers arose. The conversation reflected on both the personal and business investment that can occur when a supplier is selected, from a business stakeholder and a procurement perspective.

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Can Real Human Beings Be Good at Procurement?

Can Real Human Beings Be Good at Procurement?

This guest post is part of The Procurement Revolution. To share your thoughts or join the conversation, use #ProcureRev on Twitter or use the comment functionality below.

 

I'm Ovidiu Slimac and I am from Timișoara in the western part of Romania, a beautiful town which was just declared the European Cultural Capital for 2021. 

 
I have worked in procurement for 15 years now. And yes, I'm human. I'm a human being. And if we believe what the researchers and scientists say, all of my purchasing activities and buying decisions are made with an emotional input – even the ones I made for my company. The question is: does being human disqualify me as a good procurement professional?

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Procurement’s (Not so?) Finest Hour

Procurement’s (Not so?) Finest Hour

Procurement is undergoing a transformation, moving away from process and price and towards undertaking initiatives that demonstrate value for the business. Therefore, when the opportunity arises for procurement to demonstrate its value, you would expect them to seize it in both hands… or maybe not!

We want to share with you a real life situation undertaken this month. We have removed the names of those involved to limit embarrassment; both company names are fictitious, but the scenario is real.

 

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Nearshoring: Why Now? - Warnings

Nearshoring: Why Now? - Warnings

As we covered in Nearshoring: Why Now?, outsourcing production operations to Mexico (or nearshoring) offers a number of tangible and intangible benefits over traditional “low-cost” country sourcing. Take China as a prime example: with labor rates in China, on average, exceeding those in Mexico since approximately 2013 and holding an advantage in productivity per worker, Mexico is increasingly becoming a hub for U.S.-based companies looking to transplant their supply chain operations. In moving operations closer to home, many companies are either fully or partially outsourcing manufacturing to suppliers in Mexico and in some cases, even placing full production facilities in that country. Sourcing suppliers in Mexico, however, is not without its obstacles: challenges that can quickly halt nearshoring operations for unprepared companies.

 

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The Great North/South Divide

The Great North/South Divide

The principle of a North/South divide has been around for as long as mankind has organized itself into societies. It is a term often used within politics to define the ‘North of the country from the South’. It doesn’t matter if you are referening to the USA, UK, or India, the statement is still applicable. It works on the principle things may be considered different between two groups, thereby creating a barrier to collaboration.

The key to the model is achieving the right perspective. For example, we may embrace a North/South divide within our countries yet still passionate about being part of the same country. Overcoming the divide requires a common agenda, one that everyone can get behind regardless of which side of the divide they are from.

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Vetting Procurement Talent

Vetting Procurement Talent

Special thanks to longtime BMP friend Charles Dominick, SPSM3 of the Next Level Purchasing Association for this guest post.

Welcome back to this series on improving procurement capability.  In the previous post of this series, I covered how to find candidates for your procurement jobs.  But finding procurement talent is easier than whittling the talent pool down to that one, perfect candidate.  Let’s talk about how you do that.

Behavioral interviewing has become a classic interviewing technique.  According to Virginia Tech University, behavioral interviewing is “a technique used by employers to learn about your past behavior in particular situations…Past behavior is a better predictor of future behavior than is speculation” about how a candidate would act in a hypothetical future situation.

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Sourcing Procurement Talent

Sourcing Procurement Talent

Special thanks to longtime BMP friend Charles Dominick, SPSM3 of theNext Level Purchasing Association for this guest post.

As a procurement professional, you need to be good at finding suppliers who work out as good or better than you predict.  As a procurement leader, you need to be good at finding employees who work out as good or better than you predict.  In this post, I’ll share some traditional and not so-traditional ways to find high-potential procurement talent.

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Are Smart Contracts the Future of Contracting?

Are Smart Contracts the Future of Contracting?

Some of you may be aware of smart contracts. They are a new approach to contracting which uses technology to execute and enforce the negotiated terms. In this article we explore what the future of contracting may look like with smart contracts.

What is a Smart Contract?

In essence it is the creation of a contract using computer code rather than the written word. The computer software is then used to enforce and manage the contract, enabling both parties to utilise the contract as a living breathing document.

“’Smart contract’ can refer to any contract which is capable of
executing and/or enforcing itself.”

 

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Nearshoring: Why now?

Nearshoring: Why now?

When you think of outsourcing manufacturing operations, what country do you typically think of? China? Vietnam? Philippines? Yes, Asia is typically the go-to region for companies looking to cut costs by outsourcing production processes - and for good reason. Asia possesses both the labor and raw material resources to make the region an effective substitute to higher cost labor in the U.S. and the limited availability of certain raw materials in North America.

While outsourcing to low-cost countries such as China has its benefits (i.e. labor/overhead costs, raw material costs, scalability, freeing up the business’ time to focus on other critical functions, etc.) it comes with challenges as well. Lead times, language barriers, time zone differences, IP integrity, and a general lack of physical presence make outsourcing certain functions a constant struggle for US-based manufacturers and can outweigh the initial savings gained over the long-term. Companies oftentimes look at the price-tag of outsourcing functions such as IT support or manufacturing assembly work, figuring the decision is obvious. However, to minimize risk and to optimize/streamline domestic manufacturing operations it is important to weigh the pros and cons of outsourcing, especially in deciding which low-cost region to outsource to, which processes to outsource, and which partner(s) to use.

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Are Suppliers Faceless Entities?

Are Suppliers Faceless Entities?

The term supplier is banded around with such ease, yet has it devalued the relationship and removed the individual, resulting in generic and stale business relationships?

The supplier

The associated business activity of a supplier is simple enough: the supplier delivers goods/services to the buyer in order to fulfil a contractual requirement. However, the challenge is that the term can also be used in many other ways. For example:

  • It can be used as an excuse to blame poorly structured contracts. “The supplier didn’t agree”

  • It can be used to justify the buyer not doing something they don’t want to do “the supplier didn’t support it”

In essence the word “supplier” is used as a generic label to cover all and any activity between the buyer and their supply chain.

Labels

Society has a habit of labelling many areas of the world we live in, ranging from how one’s spouse might be identified “The wife/husband” through to labelling social, economic, political, regional, and religious groups.

When a label is used it can de-humanise the individual. Sometimes this is a deliberate approach to make it easier to talk about a wider group, however when used incorrectly it can also have a detrimental effect on how the individual identifies their value and how others evaluate their contribution.

Human relationships are behind all commercial contracts, and so de-humanising the relationship may feel like a convenient model for addressing multiple aspects but one needs to question if it will really drive the best out of the relationship.

Who Cares?

When we look at the relationship between the buying organisation and their supply chain, we see a trend. Suppliers who are valued are rarely labelled as “the supplier” but are identified by either the company name or account team members. When this supplier is discussed internally, the ability to name the company/account team demonstrates to the business the value placed upon the relationship.  This has a knock on effect within both organisations, a greater focus placed on the human relationships creates a stronger desire to accommodate and collaborate.

With more and more automation being introduced into the procurement processes, it has the capability to remove the human relationship aspect of doing business. Now more than ever one needs to focus on how labels are applied within business.

Collaboration

Collaboration remains an undeveloped area of business opportunity, with few organisations able to say they collaborate with their entire supply base. Collaboration can take many forms but they all require a human desire to want to engage. The level of support buying organisations can generate from their supply chain may be directly influenced by how the supply chain has been labelled.

The future

The next time you discuss “the supplier” you may want to reflect if it is being used to truly reflect the larger community or to cover up other underlying issues. It is human nature to blame a faceless entity when convenient such as “The Business believes XXXX,” however to get the most out of others you need to respect who they are and what they bring to the relationship.

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Spend Analysis 101

Spend Analysis 101

As a procurement professional, I am frequently tasked with conducting a spend analysis on behalf of current and potential clients, but for those outside of the industry, this may be an unfamiliar exercise. In this post, I will attempt to provide a crash course on spend analysis, answering some of the most commonly asked questions about the topic: What is a spend analysis? Why should I do one? And finally, how do I do it?

A spend analysis is a very broad term that refers to… you guessed it! Analyzing the spend of an organization with the objective of understanding where money is being spent and where there may be opportunity for cost savings or process efficiencies. Spend analyses are conducted by procurement professionals in an attempt to get a comprehensive view of all of an organization’s expenditures and they are frequently the starting point for beginning the strategic sourcing process. There are a number of benefits to conducting a spend analysis, but the most important is transparency. A spend analysis provides a holistic view of all spend (indirect and/or direct) in a given time period, typically during a fiscal or calendar year. By doing this, you are able to gain visibility into where spend is being allocated, who the top suppliers are, how many suppliers you use for certain services, and areas of opportunity. For decentralized organizations, a spend analysis may reveal potential service redundancies across departments/brands and provide insights into areas of consolidation across supply bases. Along the same lines, a spend analysis provides organizations with the information needed to increase spend control by showing where and how spend/budgets are being allocated. Although there are many reasons why an organization would conduct a spend analysis, the benefits are consistent.

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Should procurement be paid commission?

Should procurement be paid commission?

It is not uncommon for procurement to receive a bonus payment based on the savings the department has achieved. In this post we discuss if procurement would benefit more from being on a salary plus commission payment structure.

AFTER READING, TAKE OUR TWITTER POLL: Should procurement be paid commission?

The traditional approach for calculating pre-contract savings is to obtain a minimum of three supplier quotes, select the mean as the base point then count the additional savings achieved above the base point. The challenge for the CFO is because the savings are subjective, they are unable to truly identify tangible and quantifiable savings from procurement’s impact, therefore the level of bonus they might apportion directly to procurement is limited.


 

Assessing bid submissions based not just on initial costs but total forecasted end to end costs is becoming more prevalent as businesses take a wider view of the true cost of ownership. However, since the model for encouraging procurement to strive for savings remains focused on the bid submission, applying this approach to determine bonus compensation has a high likelihood of conflict. The bonus payment approach could arguably be stated as outdated, thereby creating an opportunity for procurement. An alternative approach might be to replace the bonus model with a commission structure, based on the end to end total contract savings.

 

Procurement benefits would include:

  • Ability to be recognised for the full business value a team/individual delivers.
  • Encourages and rewards end to end contract ownership and relationship management.
  • Encourages post-contract collaboration, ultimately leading to the possibility of generating post-contract savings within the same contract term.

 

The potential benefits for the business include:

  1. Maximises pre and post-contract savings.  Post-contract savings is an area currently underdeveloped as the main focus remains on pre-contract savings, which is understandable given it is the main area for bonus achievement.
  2. Creates a catalyst for procurement cultural change, focused on supplier collaboration and successful implementation. This unlocks the supply chain and drives innovation and collaboration across the business to increase bottom line profits.
  3. Ensures operational costs are kept to a minimum.
  4. Encourages and rewards end to end contract, maximising contract savings

 

There are many people within procurement who have “fallen” into the role rather than pro-actively sought to become procurement professionals. Even those who have deliberately sought after the role, few may still believe it was a good career choice. The change to commission based compensation has the potential to raise procurement salaries to new levels, provide a catalyst for change, and enable procurement to reflect their full business value, which could in turn could attract new talent and retain experience that is sorely needed.

Like all new ideas, there is an upside but also a downside. Moving onto a commission structure based on the overall savings from successfully managing the contract could quickly lead to some personnel being identified as under delivering. The key to gaining business support in this initiative is by demonstrating greater profitability for the CFO in undertaking this route. The central question is: does procurement want to undertake this direction?

 

 

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Would You Buy From You?

Would You Buy From You?

If you were to review your own procurement team’s achievements and capabilities from the perspective of a customer, would you buy from you?

The principle of using an internal business function which is currently a cost centre, and turning it into an revenue generating business proposition, is not new. Examples can be found in most areas ranging from IT through to Finance. The principle is based on creating such a leading business function others will pay to use.

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